A miracle is often expected in a crisis. The miracle in the current financial and climate
crises is the fundamental shift in expectations away from our dependence on fossil fuels and
economic prosperity. Whilst global leaders are betting the future on a “Green New
Deal,” China once again surprised the world by allocating 38% of its stimulus package
towards green projects, including low carbon infrastructures such as railways. After creating
an economic miracle in the last three decades by achieving continuous nearly double-digit
annual growth and lifting tens of millions of people out of poverty, the world’s most
populous country seems determined and well positioned to steer its economy towards a low carbon
future.

Green stimulus for low carbon prosperity

From the details released so far in the stimulus package, it might be hard to pin down exactly how
much is really going to be devoted to green initiatives. HSBC Banking Group’s calculation of
38% has definitely put China ahead of most others, and in reality, more programmes and policy
incentives are being rolled out to support low carbon solutions. For instance, the Ministry of
Science and Technology has launched a programme of “Ten Cities,
1,000-New-Energy-Vehicles.” Now 13 cities have been selected and each is committed to purchase
at least 1,000 vehicles that use hybrid, electricity or fuel cells, in particular for buses; all of
which is subsidized by government financing. The ambition is to achieve 100% new energy vehicles
nationwide by 2012.

A further exampleis the recent solar BIPV initiative, whereby approximately 30-50% of the upfront
cost for integrating solar PV into commercial and public buildings will be covered by government
funding. The LED lighting program is next in line. This programme again plans to start with 10
cities, each of which is required to install at least 10,000 LED lights, subsidized by the national
government.

Improving energy efficiency continues to be a priority. With huge funding now being pumped into the
stimulus package, energy consumption and environmental protection become two gate-keepers to prevent
investments in projects that would damage the environment. Restructuring energy intensive industry is
a major task of the stimulus where small and dirty power, cement and steel plants are being shut down
and replaced with more efficient capacity.

A clear pattern has emerged showing that clean or low carbon technology deployment and development is
at the core of stimulating China’ economy. Similar to the stimulus packages of other countries,
the Chinese plan is to reshape its economy with renewable and cleaner energy solutions and improved
energy efficiency. If done well and effectively, China is expected to join the global leadership in a
low carbon economic revolution.

Emerging trends to form the foundation for transformation

Such a revolution, though still in its infancy, is manifested through clear government vision and
strong policy support. The 20% energy intensity reduction target between 2005 and 2010 now covers
almost all major carbon emitting industries to offer companies in China the incentives and confidence
to move into low carbon sectors.

The renewable energy sector target is often exceeded. Wind power, for instance, has been
developing rapidly, growing over 100% annually in the past few years. The country’s currently
installed wind power capacity has reached 12.15 million KW, achieving ahead of schedule the
country’s target of 10 million KW that was set for 2010.

Chinese business leaders are taking actions to reduce emissions from their own operations while
reaping the economic, environmental and social benefits. A low carbon wave has swept up literally
tens of thousands of Chinese companies into new markets and created some of China’s most
successful business leaders. In early March this year, the Sunday Times published a "Green Rich
List”. Seventeen out of the world's top 100 "green giants" on the list are
from mainland China. And out of the 17 Chinese, 11 are in the solar energy industry.

Himin Solar Energy Group has grown in under a decade to become the world’s leading manufacturer
of solar water heaters, helping to bring solar energy into 40 million Chinese homes. Financial
institutions are investing heavily in renewable energy and cleaner technologies. China is the second
largest recipient of sustainable energy investment after Germany, with approximately US$12 billion
invested in 2007. And the Chinese Government invested over 41 billion RMB Yuan (US$6 billion) in
energy efficiency projects in 2008.

Regional governments at provincial and municipal levels are focusing on alternative development paths
to revitalize local economies. Driven by top local leadership, Guangdong Province, which led
China’s reform and opening up three decades ago, is now pioneering low carbon technology
innovations and deployment in such areas as EVs, storage batteries, LED lighting, green buildings and
industrial energy efficiency.

The city of Rizhao (which means City of Sunshine in Chinese) in Shandong Province has become the
first Chinese city to sign up to the UNEP “Climate Neutral City Network” by scaling up
solar solutions to the extent that 99% of the roof-tops in the city are now covered by solar water
heaters, and most traffic signals, street and park lights are powered by PV solar cells.

Chinese consumer awareness has also been rising. With a population of 1.3 billion, it is
crucial to guide consumption patterns towards a low carbon direction. Policies such as mandatory
efficiency labelling of consumer appliances and fuel economy standards have helped to change
behaviour and create a market for low carbon products. Companies, for their part, have responded
rapidly with a range of environmentally friendly products along with marketing campaigns to stimulate
markets.

In that process a positive cycle has emerged to form the foundation for low carbon economic growth in
China. Policy incentives begin to drive technological innovations. Innovations drive capital flows
towards cleaner and greener technologies and solutions, which in turn drive the actual deployment and
diffusion of those technologies and solutions.

Barriers to be overcome to achieve transformation

Though there is increasing evidence of movement towards a low carbon direction, huge barriers and
challenges exist that could potentially block China from scaling up its efforts fast enough to
effectively tackle climate change. In the wind power sector, for instance, although China already
possesses manufacturing capabilities for wind turbines below 1.5 MW, the country still cannot produce
larger turbines and some crucial parts and components, such as turbine bearings, gearboxes and
control systems.

How to finance low carbon solutions is another major barrier. A research by McKinsey indicates
China’s green economy will require 40 trillion Yuan in capital by 2030, while according to the
International Energy Agency (IEA), the figure will be 45 trillion Yuan. Where will the money come
from? How much public finance is needed to leverage private investment?

The key to solving these problems is international scale solutions alongside all the efforts at
national and local levels.

Climate deadlock to be broken for a clear global vision

That is part of the reason why China is calling for developed countries to lead in achieving a low
carbon economy. Besides the responsibility factor, China expects low carbon technology cooperation
and financial support from Western countries to support its efforts so that a low carbon roadmap
could be drawn based on real-life practices and shared with other developing countries.

When world leaders go to Copenhagen this December to craft a new global climate deal, they are
expected to set a clear global vision of a low carbon future that is radical but practical. Before
getting there, barriers need to be carefully examined to determine why clean technologies and
solutions that mostly exist today have not been scaled up to the expected level.

A vision in Copenhagen this year is absolutely necessary, and yet a vision does not reduce a single
ton of carbon. What works is action at local level, in households and offices, and by the individual
consumer. A well-developed and effective global deal would give direction, encouragement and strong
support for country-level efforts like China’s to embark on a pathway that is low carbon,
efficient and sustainable.

About The Climate Group:
The Climate Group is an international, independent, non-profit organization that works closely with
government and business leaders to end global warming and secure a healthy planet and a vibrant low
carbon economy that meets the world’s aspirations for growth and well-being. Headquartered in
London, the organization is represented in the EU, USA, China, India and Australia. For further
information see: www.theclimategroup.